Young and Old Corporation (YOC) uses two aging categories to estimate uncollectible accounts. Accounts less than 60 days are considered young and have a 5% uncollectible rate. Accounts more than 60 days are considered old and have a 40% uncollectible rate.
Required:
1. If YOC has $ 100,000 of young accounts and $ 400,000 of old accounts, how much should be reported in the Allowance for Doubtful Accounts?
2. If YOC’s Allowance for Doubtful Accounts currently has an unadjusted credit balance of $ 40,000, how much should be credited to the account?
3. If YOC’s Allowance for Doubtful Accounts has an unadjusted debit balance of $ 5,000, how much should be credited to the account?
4. Explain how YOC’s Allowance for Doubtful Accounts could have a debit balance.